An alleged US$ 67.2 million scam involving Citibank India's branch in Gurgaon, near New Delhi, may ultimately prove to be a major setback for all foreign banks awaiting entry to the restrictive Indian market, where foreign banks make up just 0.4% of th industry, reports the Wall Street Journal.
This is because the scandal comes at a time when Indian regulators are deciding whether to allow greater expansion of foreign banks into the country, which had 18 foreign banks waiting to enter as of last year.
This scam, valued at between US$ 67.2 million, or US$89 million (4 billion Indian rupees), which was the amount reported by the Press Trust of India; was purportedly thought up by Shivraj Puri, Citibank's Gurgaon-based Relationship Manager for high networth clients. Mr. Puri, it was reported, used a mixture of forgery and bribes to attract nearly 20 high networth individuals, some of who were promised 18% returns and shown forged documents proving the soundness of potential investments. It also roped in 18-20 corporates, where executives were paid commissions of as much as US$ 4 million which was allegedly the case with Sanjay Gupta, Chief Finance Officer of the Hero Group, which has links to Hero Honda, one of the top motorcycle manufacturers in India.
In fact, according to the Press Trust of India, one third of the amount garnered from the scam was attributable to high networth individuals and others with the balance from the Hero Group, where two other employees other than Mr. Gupta have also been implicated.
Mr. Puri had then allegedly siphoned off these funds into as many as 18 Citibank India accounts opened in the name of family members, which were then used to invest in the derivatives market through stockbrokers Religare and Bonanza, both of whom are also being investigated for violating trading practices and anti money laundering regulations.
Amidst all this is a lawsuit filed by the Managing Director of venture capitalists Helion Advisors, Sanjeev Aggarwal, who claims that his entire savings of US$ 7 million was co-opted by Mr. Puri and this was due to a "systemic failure" in the bank. His complaint has also named a number of Citibank India brass and even, in a surprising turn of events, Citigroup's global Indian-born Chief Executive Vikram Pandit and even its Chairman and others. According to India’s Business Standard newspaper, Mr. Aggarwal's complaint has accused criminal conspiracy, cheating, breach of trust and fraud in handling his accounts. The newspaper also says the fraud was discovered a month before it was reported by Citibank to police at the end of December 2010. He has also publicly stated that Citibank India executives had allegedly contacted him to work out a "settlement" which had not been pursued by the bank.
Currently, local police are questioning a number of employees of Citibank India as well as seeking Mr. Puri's family members for questioning in relation to these events. Mr. Puri and Mr. Gupta are being held in custody. Additionally, as of January 12 story by the Pioneer, no high networth investors, other than Mr. Aggarwal, have approached the police despite losses amounting to significant sums, a situation which has once again raised the spectre of money laundering. Meanwhile, investigations are also ongoing by the regulator, the Reserve Bank of India, and the Securities and Exchange Board of India. |
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